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Re: US Financial Situation 2011

I doubt dolar would be that affected by inflation there are lots of countries willing to buy dollars just to maintain it more or less stable so they can have more competitive prices for their exports.

Not at any price. They will do so for a certain amount of stabilisation, but not infinitly. When US debt goes out of control, they won't even try keeping up with that.
This recipe only worked until now, but might not do so any further.

Re: US Financial Situation 2011

Originally Posted by cmertb

I don't get this downrating thing. The US debt has been implicitly AAA because the US gov't controls the currency that its debt is in. So all they need to do is just print more dollars and give them back to China. Are they seriously considering the situation that the US would go into default rather than print more cash to pay back the creditors? That doesn't happen normally...

Controling your money and having a AAA is not really related. And if inflation was the ideal solution I guess not everyone would try to avoid it. Of course it is helpful to decrease your debt but in the long term it has quite huge bad effect on your economy.
If the dollar was a standard money, the US would have been in default since long ago. If it starts to be questioned then I guess that only means troubles for everyone

Re: US Financial Situation 2011

I would think it would be a big deal if US bonds lose their AAA rating. Although it is true that it is unlikely that they would go into default instead of paying with printed money. I don't think there is something inherently wrong with being in debt as it is a better alternative than paying for everything straight up but in turn with the bailouts and the not so cheap reforms and projects obama has the whole thing is very close to going out of control. I think obama choose a bad time for the reforms he wanted to make. IMO it would have been wiser to leave those things for a time when the economy is better and can afford them. At the very least changes could have been more gradual, not outright increase spending to an apparently unknown amount. Obama should have focused on putting the economy back on track first. Basically, make the money and then use it not the other way around.

Re: US Financial Situation 2011

Originally Posted by kkck

I would think it would be a big deal if US bonds lose their AAA rating. Although it is true that it is unlikely that they would go into default instead of paying with printed money. I don't think there is something inherently wrong with being in debt as it is a better alternative than paying for everything straight up but in turn with the bailouts and the not so cheap reforms and projects obama has the whole thing is very close to going out of control.

So, what you are saying is that they should shift more debt towards the FED, as that is what "printing money" means (buying the own state bonds via FED).
However, that does not lower the amount of debt, it lowers the interest on state bonds while increasing inflation - that is very bad, because it can happen that inflation is higher than the interest on state bonds then, and then really nobody would buy them anymore as buying them would result in a deficit instead of profit.

Re: US Financial Situation 2011

I have a hard time understanding the big deal about the downrating. My attention is focused on the people who determine the rates, however. These individuals have proved their own incompetence one too many times. For example, what were rating agencies saying before the Great Recession hit? "Everything is A-OK! Don't worry! The markets are doing swell!" Then 2008 came and showed these agencies just how wrong they were.

Originally Posted by segua

I looked into the reason why so many business are moving overseas. The cause was really too high of a price to do business in the U.S. Causation? High business taxes created an unfriendly business environment. It's no wonder why so many businesses would outsource many jobs overseas where cost is cheaper. At the end of the day, it really is the bottom-line.

High taxes? The 17,000+ page US tax code is filled with so many loopholes that a model of the tax code would look like swiss cheese. 2/3 of US corporations do not pay federal taxes at all and only account for 10% of total revenue. So taxes are not the chief reason companies prefer to ship jobs overseas

The chief reason why companies ship jobs overseas is because of labor costs. Foreign labor is much cheaper than US labor. In addition, companies no longer have to comply with the stricter US safety + environmental standards.

Re: US Financial Situation 2011

Originally Posted by Franckie

I have a hard time understanding the big deal about the downrating. My attention is focused on the people who determine the rates, however. These individuals have proved their own incompetence one too many times. For example, what were rating agencies saying before the Great Recession hit? "Everything is A-OK! Don't worry! The markets are doing swell!" Then 2008 came and showed these agencies just how wrong they were.

Downrating means, that the U.S. will have to pay higher interest rates on their state bonds (that's how states get their money after all). Obviously that is like a highway to financial ruin when the high debts become even more expensive.

Yes, it's true that these ratings are not very reliable, but that's absolutely not important for the situation. As long as investors believe in the ratings, they are important.

About the interest: Lately, US 10yr treasuries pay 3.99% interest rate, which was increased only because S&P changed outlook to "negative".

Re: US Financial Situation 2011

partly why the reason that the U.S. is broke:

~50% of our population (the poor or near poor) pays no taxes + the rich % of population pays no taxes + the financial mess/breakdown of "too big to fail businesses" + the wars/involvement in middle east and north africa + regulation and corporate taxes further driving businesses overseas and making it UNaffordable for the businesses still in the U.S. to hire workers too + the entire world's economic mess and being broke too = U.S. is very broke (well, going to be, anyways, lol)

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as for "raising the debt ceiling", this is a massively contentious political issue in the U.S., so who knows if we'll do it or not, if moody lowers the U.S. rating or not, etc...

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what's the point in raising taxes if most of our population (poor+rich) doesn't pay any taxes anyways?

no, what we really need is ENFORCEMENT of paying taxes, and than we can see if we still need to raise taxes or not, lol.

Last edited by HegemonKhan; June 03, 2011 at 04:17 AM.

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Re: US Financial Situation 2011

According to my poli sci professor, if that debt ceiling doesn't get raised we are fucked...default on our loans for the first time in our history which will make us seem unreliable and that of course will be followed by a dramatic decrease in the value of the dollar...hurray!

Re: US Financial Situation 2011

Originally Posted by Drmke

According to my poli sci professor, if that debt ceiling doesn't get raised we are fucked...default on our loans for the first time in our history which will make us seem unreliable and that of course will be followed by a dramatic decrease in the value of the dollar...hurray!

Die Zeit (German Newspaper) agrees with him: http://www.zeit.de/politik/2011-07/s...mit-restrisiko
The quandary continues. Republicans want no more taxes but lower welfare (is that even possible in the U.S.? omfg), Republicans say no cuts but higher taxes for the rich.
If they cannot find a compromise in three weeks, the U.S. will be unable to pay their bills.

As I used to say here before, both have to be done - cuts on spendings as well as increasing taxes. Yet especially decreasing spendings appears risky to me, as it endangers economy. And the U.S. have finally to cut on their military... It's bigger and more expansive than during cold war, cmon. Obviously arms industry would be severely opposed, so I guess nothing will happen.

Re: US Financial Situation 2011

Originally Posted by xi0

I really can't see the entire Republican Party going along with this farce too much longer without risking SERIOUS damage to them in 2012.

I'm not so sure. They are clinging to economic liberalism while making a xenophobic appearance, thus still wanting their military to be strong. It is a total complete jam in financial matters, but it seems that the financial situation was severely underrated by vast parts of U.S. population and even politicians, at least German newspapers said so a few weeks ago. That this might be the most serious problem of the U.S. - big crisis and not enough people even notice that.

Re: US Financial Situation 2011

Originally Posted by Roflkopt3r

I'm not so sure. They are clinging to economic liberalism while making a xenophobic appearance, thus still wanting their military to be strong. It is a total complete jam in financial matters, but it seems that the financial situation was severely underrated by vast parts of U.S. population and even politicians, at least German newspapers said so a few weeks ago. That this might be the most serious problem of the U.S. - big crisis and not enough people even notice that.

Well people who care notice...it's all that non-conservative media talks about every day. I'm not talking about anything in specific, just the debt-ceiling issue. Those of the Tea Party may wave the flag and all that, but it's pretty obvious that they're anti-government, and they at least act like they want to see us default or something. Heads will role next year if the extreme right gets their way.

Re: US Financial Situation 2011

Originally Posted by xi0

I really can't see the entire Republican Party going along with this farce too much longer without risking SERIOUS damage to them in 2012.

The Republican Party has proven its own incompetence regarding the power of the purse one too many times already. The Bush years are a blatant example and the party has hardly changed since then as their current views on topics such as tax cuts and Medicare demonstrate. The party is far too willing to gamble the USA's health in order to get what they want, so I can see the majority of the Republican Party actually going through with their threats if Democrats don't accept their demands. Especially since their political base has been very partisan here these past few years.